Financial reporting standards for pensions: The relationship between financial reporting and cash flow variables and changes in the interest rate assumption

An issue that has long been of interest in financial accounting research is the question of whether firms take advantage of areas in which flexibility exists in financial reporting standards in order to improve reported performance in the annual financial statements. In the early 1980s, a significant number of firms changed the interest rate assumption used in the computation of pension expense as reported on the income statement, enabling many firms to report higher net income.